How does an IRS 1031 Tax-Free Exchange work?

A 1031 exchange requires an intermediary accountant to hold the money from the sale of a capital item such as farmland and requires a good real estate attorney.

• Sellers do not take possession of any of the sales proceeds personally, including earnest money from the buyer.
• All money is held with a designated intermediary.
• The seller has 45 calendar days to identify replacement property in writing to the IRS.

Replacement property can be identified in two ways

• Up to three parcels each with a value similar to or less than the sale proceeds.
• Unlimited parcels so long as the total value does not exceed 200% of the sale proceeds.
• Seller has 180 calendar days to close on the identified parcels.
• If the buyer is a government or public entity, the time line for identifying and closing on replacement property can be extended. We recommend consulting with your tax attorney and accountant to confirm that the property you would like to acquire qualifies.

• Effective Estate Planning for Landowners

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